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The value of New Zealand residential building work rose by a slower pace in the December quarter, hampered by capacity constraints with skilled construction workers in high demand.

The seasonally adjusted value of residential building work gained 2.5 percent in the three months ended Dec. 31, after a 4.1 percent rise in the third quarter, Statistics New Zealand said. Residential building work volumes grew a seasonally adjusted 1.1 percent in the latest three-month period, down from 2.4 percent in the third quarter.

"That's a more modest rate of growth than we saw in recent quarters," Westpac senior economist Satish Ranchhod said. "We are hearing anecdotes of capacity constraints in the sector, particularly with regards to the availability of skilled labour.

"This follows strong increases in construction activity in recent years, with building activity up a solid 14.9 percent over 2016 as a whole."

Total building volumes rose 1.9 percent, seasonally adjusted, in the fourth quarter, while the value rose to 3.5 percent. Actual value of all building work was $5.3 billion, up 21 percent from the same quarter in 2015.

The value of building work in Auckland was $2 billion, up 34 percent from the same quarter in 2015, and in Christchurch $1.1 billion, down 2.3 percent from 2015.

In actual terms, the value of residential building work rose 22 percent from the same quarter of 2015 to $3.4 billion, with Auckland work rising 30 percent to $1.3 billion and Canterbury down 6.2 percent to $602 million.

The actual value of non-residential building work rose 20 percent from a year earlier to $1.9 billion, led by a 42 percent gain to $703 million in Auckland and a 2.9 percent increase to $506 million in Canterbury.

"With strong gains in activity, it is unsurprising that we have seen costs rising. Construction costs rose by an estimated 5.9 percent over the year to December - their fastest pace since 2005. We expect cost pressures to be sustained for some time, and risks are to the upside," Ranchhod said.

"There is a large pipeline of work, including very strong residential demand in Auckland and elsewhere, a large amount of planned infrastructure work nationwide, and continuing reconstruction activity in Canterbury (though this has started to gradually ease back).

On top of these factors, reconstruction following the recent earthquakes near Kaikoura will reinforce a strong outlook for the construction sector over the coming years. However, emerging capacity constraints may provide some brake on growth."